Investor view: Daniel Wong

“The emergence of yield investors forms an important element of allowing utilities to recycle capital once assets have de-risked”

The emergence of listed, yield-focused vehicles, or YieldCos, as long-term owners of renewable energy assets has been one of the key themes of the listed market in 2013. It is a welcome additional source of capital for the sector, particularly for utilities seeking to scale back balance sheet commitments.
With ten-year gilts yielding 2.7 per cent and the market average yield on UK shares around 3.8 per cent, businesses promising stable yields of 6-7 per cent have been attractive to the market. Over the course of 2013, listings have included Greencoat UK Wind, Renewable Infrastructure Group, Bluefield Solar, Foresight Solar and Infinis. Together they have raised over £1 billion of capital in a sector that had been out of favour since 2007/08, when many larger developers failed to deliver optimistic development pipelines.
The trend is not limited to the listed market. Pension fund and insurance investors, such as Hermes, MEAG and Allianz, which have long recognised the benefit of investing in stable yielding assets, have also been active in buying renewable energy assets across western Europe.
Utilities in Europe accounted for about 10 per cent of global investment in wind and solar farms in the past five years. However, many are now seeking to scale back balance sheet commitments. This trend is expected to deliver a steady stream of assets to market, and the emergence of yield investors helps utilities to recycle capital once assets have de-risked.
With the large influx of issuances coming to market against a backdrop of forecast interest rate rises and regulatory uncertainty, many question the long-term sustainability of the listed renewable YieldCos. However, Foresight and Infinis have recently closed their books successfully and there is list of new names queuing up to list in the next few months.
Observing the more established listed PFI fund market suggests the desire for stable yields will remain strong throughout the cycle. Provided interest rates stay low, we think listed renewable YieldCos are here to stay.